After the 9th U.S. Circuit Court of Appeals tossed a $10.6 million deal in a false ad suit challenging claims for Kellogg’s Frosted Mini-Wheats cereal, a federal court judge has signed off on an amended $4 million agreement.
The false advertising suit was based on allegedly misleading statements like “Does your child need to pay more attention in school? … A recent clinical study showed that a whole grain and fiber-filled breakfast of Frosted Mini-Wheats helps improve children’s attentiveness by nearly 20%.”
The parties reached a deal to settle the suit for $10.6 million: $2.75 million would be distributed to class members; $5.5 million worth of cereal would be donated to charity; and $2 million would go to class counsel fees. Kellogg also agreed to refrain from making claims about children’s cognitive development for a period of three years.
But the 9th Circuit reversed the approval and found numerous problems with the terms—including “excessive” attorney’s fees and a lack of specifics on the food donated to charity. The federal appellate panel said the cy pres portion of the deal was not “sufficiently related” to the plaintiff class and had “little or nothing to do with the purposes of the underlying lawsuit or the class of plaintiffs involved.”
Heading back to the drawing board, the parties reached a second agreement earlier this year. Under the proposed settlement, Kellogg would provide a $4 million fund which would cover distribution to class members (eligible for reimbursement of $5 per box up to $45 per class member), administration costs of almost $1 million, and attorney’s fees of $1 million. The injunctive relief remained identical.
Judge Gonzalez gave her final approval in September, with just six objections from class members.
“Here, after careful review, the proposed settlement appears fair, adequate, and free of collusion,” Judge Gonzalez wrote. “The settlement provides the class with both a substantial cash recovery as well as significant injunctive relief, which together amount to over $4 million in value achieved for the class. Moreover, the reaction of the class has been largely positive and the few objections are without merit.”
Notice costs of approximately $900,000 were reasonable, as were the counsel fees of $1 million, which constituted 25 percent of the cash fund, and Judge Gonzalez noted this was in line with California’s benchmark for counsel fees (33 percent) and the federal benchmark (25 percent). “The $1 million requested fee is essentially at cost without any multiplier and thus appears reasonable, perhaps even a discount, given the risks borne by counsel proceeding on a contingency, the duration and complexity of the case, and the substantial benefit realized for the class.”
To reflect the nature of the plaintiff’s false advertising claims, the parties amended the possible cy pres recipients to reflect the nature of the plaintiff’s false advertising claims to Consumers Union, Consumer Watchdog, and the Center for Science in the Public Interest.
To read the opinion granting final approval to the settlement in Dennis v. Kellogg, click here.
Why it matters: The second time could prove to be the charm for the parties unless an objector takes the case back up to the 9th Circuit. Despite the settlement, however, the case will live on, as Dennis has become the touchstone in false advertising consumer class action settlement agreements. The federal appellate panel’s decision, frequently cited by other courts, provided a warning to other litigants regarding the court’s standards of review in class action settlements.
